Edward J. Podolski

Local Gambling Preferences and Corporate Innovative Success

This paper examines the role of local attitudes toward gambling on corporate innovative activity. Using a county’s Catholics-to-Protestants ratio as a proxy for local gambling preferences, we find that firms located in gambling-prone areas tend to undertake riskier projects, spend more on innovation, and experience greater innovative output. We contrast the local gambling effect with chief executive officer (CEO) overconfidence, another behavioral effect reported to influence innovation. We find that local gambling preferences are a stronger determinant of innovative activity, with CEO overconfidence being more relevant to innovation in areas where gambling attitudes are strong.

Regulating Synthetic Securitisation Following the Global Financial Crisis

This article explores whether proposed changes to the regulation of synthetic securitisation in Australia are sufficient in light of the Global Financial Crisis. Synthetic securitisation is specifically chosen as an object of study, given the relative ease with which it can be over-used. The article examines several theoretical problems with securitisation, which entice corporations into excessively risky behaviour. Contrary to popular belief, it is established that agency issues are not a serious problem with securitisation. Instead, managerial behavioural biases are shown to be most problematic. The article recommends stricter capital adequacy relief requirements, which would provide a disincentive for excessive risk-taking by potentially over-confident managers.

Employee Treatment and Corporate Innovative Success: Evidence from Patent Data

This paper investigates the effect that employee treatment schemes have on corporate innovation performance. We find that firms with better employee treatment schemes produce more and better patents through improving employee satisfaction and teamwork. Additional tests suggest that our main findings cannot be attributed to job security, unionization, reverse causality, and omitted variables. We also find that firms with better employee treatment schemes produce patents that enhance market valuation and facilitate better future operating performance. Collectively, our findings show that treating employees well benefits firms and shareholders, for well treated employees are encouraged to create intellectual property.

Managerial Mood and Earnings Forecast Bias: Evidence from Sunshine Exposure

We examine the role and economic consequences of emotions in influencing the judgment of corporate executives. Analyzing a large sample of U.S. public firms, we find that sunshine-induced good mood leads managers to make upwardly biased earnings forecasts. Importantly, our evidence implies that managers become less susceptible to the sunshine priming effect when the information environment is more certain, external monitoring is stricter, and managerial incentive structures are stronger. Additional results suggest that market participants are capable of unraveling sunshine-induced biased forecasts, and that managers who are prone to the sunshine priming effect impose costs on their firms in the form of higher information risk and equity financing costs. Reflecting that labor markets also play a disciplinary role, we find that mood prone managers suffer adverse career outcomes. Our paper is the first large-scale study to document the nuanced ways in which emotions affect top executives.

In the Mood for Creativity: Weather-Induced Mood, Inventor Productivity, and Firm Value

Prior research in psychology predicts that sunny weather is associated with creativity, optimism, and risk-taking behavior. In this paper, we examine the effect of weather-induced mood on patent inventors’ productivity and the value implication of such an effect. Using an annual measure of relative sunshine around each inventor’s residential location, we document that inventors exposed to more sunshine during a year create patents with higher market valuation and more forward citations. Our results hold after addressing alternative explanations and conducting an exhaustive array of robustness tests. Furthermore, we show that inventors exposed to more sunshine engage in greater specialization rather than experimentation. Our paper is among the first to show that weather conditions have a real effect on firm value through the innovation channel.